CHAPTER 5

SUPPLY SOURCES

LEARNING OBJECTIVES

Understand how the supply base can contribute to the achievement of retail product management objectives

Introduce different types of supplier, and understand how they can be accessed

Explore supplier factors that are used in supplier selection, evaluation and monitoring

Develop an understanding of retailer-supplier relationships and how they affect the buying process

TYPES OF SUPPLIER Manufacturers (direct) Agents Wholesalers and distributors The ‘grey’ market Alliances and concessions Choice will depend on:

size of supplier and retailer channel power brand appeal other selection criteria (see later)

SUPPLIER SEARCH (SOURCING)

An important and on-going part of RPM Usually undertaken by buyers / selectors /

sourcing managers Assistant buyers may initially screen suppliers

who approach retailer Supplier search is increasingly on a global scale Trade shows and supplier catalogues are

important sources for smaller retailers

CHOOSING A SUPPLIER

Assessing a supplier’s suitability to retailer Supplier assessment stages:

initial assessment (see Table 5.1) references, visits and product testing (technologist

appraisal) trial order supplier evaluation supplier monitoring

Some retailers out-source supplier assessment

Table 5.2 A Portfolio of supplier relationships Core suppliers Use on regular basis for specific skills

Increasing business according to competence

Supply partners Ongoing supply Shared strategic objectives Operational adaptations

New/intermittent suppliers Emerging product markets Occasional purchase requirement (seasonal) Fads

Inactive suppliers Dormant De-listed Emergency supply

RETAILER-SUPPLIER RELATIONSHIP DEVELOPMENT

Traditional buying process models ignore the fact that most retailer-supplier

transactions take place within an on-going relationship

ignore the fact that suppliers are often the instigators of a buying decision (product suggestion)

Revisiting the B2B buying process resulted in the INTERACTION MODEL (IMP, 1982)

Products Information

Social Financial

become

Adaptations Institutionalisation

SUPPLIER RETAILER

THE INTERACTION MODEL: FIGURE 5.1

One-off transactions

Repeated transactions

Alliances Partnership Long term relationship

Vertical integration

Collaborative systems

Franchises Licences

Ongoing transactions

Owning suppliers

STAGES OF DEVELOPMENT IN RETAILER-SUPPLIER RELATIONSHIPS

(FIGURE 5.2)

Table 5.3 Transactional vs partnership approach in retail supply Transactional Short term or one-off Many suppliers and buyers Disloyalty and lack of commitment Low switching costs, little or no investment made in

relationships Loose or no procedures Exchange centred on single person in firm Changes in customer/supplier makes little difference Partnerships Long term and on-going Few suppliers and buyers Loyalty and commitment High switching costs, significant investments will have been

made in the partnership Strict procedural guidelines Many people and departments involved in exchanges Change in customer/supplier causes disruption

SUPPLY CHAIN MANAGEMENT

Operational efficiency derived from the alignment of retailer’s and supplier’s logistical systems

Requires partnership approach with suppliers Depends on integrated information technology and

data sharing Increasing responsibility on suppliers to ensure

product availability Increasing responsibility on suppliers to improve

product variety / development

Box 5.7 Factors that will improve relationships between retailers and their suppliers In understanding of each others’ strategic business aims, including an appreciation of

target customer profiles and brand image. Mutuality in this respect will help the businesses to grow simultaneously.

Detailed feedback on sales from the retailer to the supplier. This is likely to include

transmission of sales data via electronic data networks in large retail organisations. Qualitative feedback and discussion on poor sellers is likely to reduce mistakes in the future.

Co-operation and co-ordination in marketing activities. Examples would include co-

operative advertising, provision of promotional material by supplier for retailer’s campaigns, store support for supplier’s media campaigns, joint participation in charity-linked promotions.

Sharing of information on relevant consumer trends and product / market trends and

innovations. Commitment of businesses to one another, including combined forward planning, store

space dedicated to supplier’s ranges, provision of point of purchase materials and fixtures for the retailer, retailer involvement in product development.

An understanding of the retailer’s quality standard requirements, including product quality and compliance on service, delivery, and administration.

Systems integration to facilitate information sharing, including sales data, stock and

delivery information. Adoption of information management systems which underpin collaboration between

retailers and suppliers